Alameda's Secret Backdoor Discovered Months Prior to FTX Collapse: Report | FTX Sam Bankman-Fried (SBF)
FTX employees in the US reportedly found a hidden backdoor favoring Alameda Research months before FTX's collapse.
In a recent development surrounding the trial of Sam Bankman-Fried, co-founder and former CEO of FTX, it has been revealed that certain employees based in the United States discovered a hidden backdoor allegedly used by Alameda Research to siphon billions of dollars in customer funds from FTX. This discovery was made six months prior to the downfall of the crypto exchange.
The individual who uncovered this secret backdoor on behalf of Alameda was promptly fired by FTX's top management. According to the Wall Street Journal, some employees of FTX who were previously working for LedgerX, which was acquired by FTX in October 2021 and later purchased by Miami International Holdings in 2023, came across evidence of Alameda's preferential treatment in May 2022. They found that Alameda could maintain a negative balance without being subjected to the usual automatic liquidation process.
Upon discovering this issue, the employees reported it to Julie Schoening, the Chief Risk Officer at LedgerX. Schoening, concerned about the alleged preferential treatment, brought the matter to the attention of Zach Dexter, the boss at LedgerX. Dexter, in turn, alerted Nishad Singh, FTX's director of engineering, regarding the auto-liquidation problem.
Singh reportedly removed a section of code in an attempt to resolve the issue, leading Dexter to believe that the problem had been fixed. However, it later became apparent that the issue persisted. Schoening, instead of seeing the problem resolved, was fired from her position in August 2022 following reports of inappropriate messages she had sent to employees.
According to sources cited by the WSJ, Schoening's termination may have been a result of her team's identification of FTX's risk management issues, which apparently "irritated her bosses."
Miami International Holdings, the parent company of LedgerX, conducted an internal investigation and stated that there was no evidence to suggest that any of its employees were aware of the reported code that allowed Alameda to access FTX customer assets. They firmly denied any allegations to the contrary.
Following her termination, the fired LedgerX executive threatened to sue FTX. Anonymous sources claim that a $5 million settlement deal was reached between the two parties, but the collapse of the crypto exchange in November 2022 prevented the completion of the settlement.
The discovery of Alameda's secret backdoor is one of the cases being brought against Sam Bankman-Fried in his ongoing trial. Bankman-Fried, currently facing criminal charges, is being tried in New York. Recently, the prosecution's first witness, an FTX customer named Marc-Antoine Julliard, testified against Bankman-Fried in court, stating that he lost $100,000 on the bankrupt FTX. The defense, however, argues that users should be held accountable for their choice to buy and hold crypto and maintains that Bankman-Fried did not defraud anyone.
In conclusion, the revelation of Alameda's secret backdoor months before FTX's collapse adds another layer of complexity to the ongoing trial of Sam Bankman-Fried. The involvement of FTX employees, the termination of Julie Schoening, and the legal battles surrounding the termination and settlement further contribute to the intricacies of this case. As the trial continues, more details are expected to emerge, shedding light on the alleged misconduct within the crypto exchange industry.